In any academic discussion of social welfare policy, the debate usually ends up addressing the (tiresome) question of “Why can’t the US be more like Sweden?” Sweden is widely seen as a prosperous and egalitarian, whereas the United States is seen as prosperous and individualistic.
A fascinating new NBER paper by Price Fishback turns the conventional wisdom on its head. The usual statistics compare gross public spending on social welfare as a percent of GDP. In this comparison, Sweden and the other Nordic countries spend twice as much as the U.S.
But Fishback makes three commonsense adjustments:
1. He changes gross expenditures to net expenditures. In Nordic countries, taxes on social benefits are generally much higher than the US, and the US has various tax incentives (such as the Eearned Income Tax Credit) which should count as social expenditures.
2. He changes the comparison to a per capita basis, rather than share of GDP.
3. He adds in private social expenditures in addition to public.
So what we end up with is the net expenditures actually going to social welfare programs, such as health care, disability insurance, and old-age care on a per capita basis. In other words, how much is each Swede getting on average from the welfare state v. how much each American is getting on average.
The surprising answer is that the US spends more on social welfare than any of the Nordic countries, and the gap has been growing in real terms since 1993.
Net per capital social expenditures (adjusted for purchasing power parity):
Now people (like me!) would argue that the US being out front is not necessarily a good thing. I also would exercise caution in claiming that these figures actually translate into social welfare. I think the safety net in the US is much more porous than in the Nordic countries, for instance.
But it is always fun when careful analysis turns the conventional wisdom on its head.